For many years, the game industry seemed like an unstoppable "giant". With the continuous enrichment of game content and the vigorous development of mobile games, game revenue continued to climb.

However, as we enter the mid-2020s, there are increasing signs that the game industry is entering a downturn.

After experiencing a brief boom triggered by the pandemic in 2020 and 2021, global game revenue declined in 2022. According to Newzoo, global game revenue grew by just 0.5% in 2023, with the global game market size reaching approximately $184 billion.

While this figure remains impressive, it falls far short of the double-digit percentage growth expected by the industry.

In mature markets such as North America and Europe, the trend of slowing growth is even more pronounced, with key areas like console and mobile games nearing saturation. Mobile game revenue, which once drove sustained industry growth, actually declined in 2022 and is only now starting to stabilize.

However, stagnating revenue is just part of the problem. Even as growth slows, the cost of developing top-tier AAA games continues to soar.

Budgets for renowned games like Call of Duty and Grand Theft Auto now routinely exceed $300 million. Some titles have combined development and marketing costs approaching $660 million, a staggering figure unimaginable a decade ago.

These ballooning budgets force studios to play it safe, heavily relying on established franchises and proven formulas rather than taking risks. Innovation takes a back seat.

There is also evidence that people's enthusiasm for games has waned, with game ratings dropping from 3.4/5 in 2014 to 2.9/5 in 2021.

Even the hype around the latest Call of Duty and FIFA games seems to be waning. While we've recently witnessed some historic game releases, like Elden Ring, it took about five years to produce and cost over $200 million. This is a once-in-a-generation game, not the yearly blockbusters we saw before 2020.

The staffing cuts caused by tight budgets are also increasingly difficult to ignore. Layoffs are accelerating, with over 10,500 game developers losing their jobs in over 30 studios in 2023 alone.

Meanwhile, the industry is grappling with rising labor activism as workers push back against the notorious "crunch culture" that has long plagued game development.

Amid tensions in AAA studios, indie developers are making a bigger impact on the game industry – a powerful counterpoint to mainstream game development.

In 2024, indie games occupied five of the top ten spots on Steam's highest-earning chart.

Games like Temtem (budget: $6.75 million, sales: 25 million copies) and Hades have resonated with players, demonstrating indie games' potential for commercial success on par with AAA titles.

The surge in indie game popularity is part of a larger trend, with indie games' market share on Steam growing from 25% in 2018 to 43% in 2024.

Even in 2023, a year marked by the release of highly anticipated AAA games like Baldur's Gate 3 and Spider-Man 2, indie game revenue remained stable, indicating a growing audience for these games.

The rise of indie games reflects growing interest among some players for novel experiences and creative risks. While AAA game development often focuses on established franchises and proven formulas, indie developers push boundaries and experiment with new ideas.

Meanwhile, tools like Unity and Unreal Engine make high-quality game development easier, and digital marketplaces like Steam provide an excellent platform for reaching audiences.

Many indie games have achieved success through viral social media marketing, outpacing traditional marketing strategies employed by larger studios.

Building on this momentum, AI promises to further disrupt the balance of power in the game industry, redefining the creative essence of game development.

By automating and simplifying design and creation processes, AI will level the playing field, enabling small teams and even individuals without specialized technical knowledge to create competitive gaming experiences.

The Shift to AI Paradigm

The potential for AI to disrupt games has been discussed for decades, but this prospect is no longer just theoretical.

Recent breakthroughs, like Google's GameNGen and DeepMind's Genie, offer a glimpse into the future of AI-driven game design.

GameNGen can generate fully playable levels of classic games like DOOM in real-time, while Genie can create interactive 2D environments from simple image or text prompts.

These breakthroughs are part of a long-term trend toward AI-driven game innovation, despite the industry's youth.

This journey began with early milestones like IBM's DeepBlue, which defeated renowned chess world champion Garry Kasparov in 1997.

DeepBlue's victory was a landmark moment, showcasing AI's potential to excel in rule-based strategic challenges.

Fast-forward to 2016, and we saw another major leap with Google DeepMind's AlphaGo. This AI system mastered the ancient Chinese game of Go, renowned for its immense complexity and reliance on intuition.

By defeating world champion Lee Sedol 4-1, AlphaGo demonstrated that AI could tackle domains once considered exclusive to human intelligence.

Just in 2018, researchers David Ha and Jürgen Schmidhuber published World Models, showcasing how AI could learn to play video games by building internal models of game worlds.

A year later, DeepMind's AlphaStar demonstrated the power of reinforcement learning, mastering the complex strategy game StarCraft II and even competing with top human players.

GameNGen represents the cutting edge of this field today, trained on actual gameplay footage from Doom to internalize the game's mechanics, level design, and aesthetics.

GameNGen then leverages this knowledge to instantly generate novel levels, coherently arranging layouts and gameplay flow.

In contrast, Genie uses a foundation model to generate interactive environments from freer inputs like sketches or descriptions. Trained on various game genres and visual styles, Genie can adapt to various aesthetics to create content.

Behind the scenes, these AI systems are powered by deep neural networks that are, in and of themselves, becoming game engines, capable of generating complete, playable experiences from scratch.

Fundamentally, the game world is created within the AI system, not through traditional programming techniques but by deep neural networks that have learned the rules, patterns, and structures of game design.

Because the game world is generated by neural networks, it has the potential to be more dynamic and responsive than traditional game environments. The network generating the world can also be used to simulate NPC behavior, adjust difficulty on the fly, and even reshape the environment in real-time based on player actions.

With AI handling the heavy lifting of world-building and level design, developers could, optimistically, focus on higher-level creative decisions like crafting art, concepts, and storylines.

While jobs will be at risk, AI is poised to become a significant upgrade the game industry is seeking.

Empowering Players and Disrupting Business Models

The real revolution will begin when these AI tools are placed directly in the hands of players.

Imagine a world where players can imagine a game's name with just a few simple prompts and instantly jump into the action.

Want to combine the neon-lit cityscapes of Cyberpunk 2077 with the frenetic combat of Doom Eternal? Just describe it to an AI model, and the idea becomes reality.

This is a vision for the decades ahead, but in the near future, AI will enable players to create and customize simpler games tailored to their unique preferences.

Players could use AI tools to craft a platformer, defining the protagonist's abilities, the types of enemies they face, and the style of environments they traverse. They could also create a puzzle game, setting the difficulty curve, visual theme, and even the types of puzzles encountered.

The game industry is no longer limited by the creative guidance of professional game designers but can be shaped by the collective creativity of millions of players.

Furthermore, as AI game creation tools become more sophisticated, they can also foster a new generation of "pro-gamer" creators, blurring the lines between consumers and creators.

This bottom-up, democratized approach to game creation can fundamentally alter the power dynamics in the game industry. We'll see the emergence of a more diverse, player-centric gaming ecosystem, rather than a top-down model where a few large studios dictate game genres.

Platforms offering AI tools for creation and planning will drive technological advancements, taking a cut from user-generated content sales or charging for premium features.

Of course, realizing this industry vision is not without significant challenges. Issues like content moderation, intellectual property rights, job displacement, and revenue sharing must be addressed.

Still, the wheels are in motion. As technology continues to evolve, we can expect to see more AI-assisted game development and fundamentally reshaped gaming possibilities.